The unprecedented rise of the global industrial sector is creating new opportunities for the chemical industry by boosting demand, fostering innovation, and driving the need for sustainable and advanced chemical solutions. Amid this backdrop, investors could consider buying fundamentally sound chemical stocks, PPG Industries, Inc. (PPG), Avient Corporation (AVNT), and Eastman Chemical Company (EMN).
As industries like automotive, construction, and electronics expand globally, the demand for raw materials and chemicals used in manufacturing processes has surged. This fuels the need for chemical production, especially in developing regions. Hence, the chemicals market is expected to grow at a CAGR of 8.7% until 2028.
Additionally, the chemical industry is increasingly integrating AI to improve processes and accelerate discoveries. By leveraging techniques such as machine learning and deep learning, AI supports chemists throughout the entire workflow, helping to expedite drug discovery and the development of new materials.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Chemicals stocks, beginning with the third choice.
Stock #3: PPG Industries, Inc. (PPG)
PPG produces paints, coatings, and specialty materials. Its Performance Coatings segment offers protective and decorative coatings, sealants, finishes, and related chemicals. The Industrial Coatings segment provides coatings, adhesives, sealants, metal pretreatment products, optical monomers, and specialty materials.
The stock’s trailing-12-month EBIT margin of 12.66% is 17.9% higher than the industry average of 10.74%. Similarly, its 7.98% trailing-12-month net income margin is 58.9% above the industry average of 5.05%. Also, its trailing-12-month ROTA of 6.65% compares favorably to the industry average of 2.37%.
PPG’s net sales for the second quarter (ended June 30, 2024) stood at $4.79 billion. PPG’s adjusted net income came in at $590 million, up 10.5% year-over-year, while its adjusted EPS grew 11.1% from the prior-year quarter to $2.50.
The consensus revenue estimate of $4.67 billion for the fiscal third quarter (ended September 2024) represents a marginal increase year-over-year. The consensus EPS estimate of $2.16 for the current quarter indicates a 4.4% improvement year-over-year. The company has an impressive surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 5.5% to close the last trading session at $130.74.
PPG’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PPG has a B grade for Quality. The stock is ranked #30 out of 80 stocks in the B-rated Chemicals industry.
To see the other PPG ratings for Sentiment, Value, Growth, Stability, and Momentum, click here.
Stock #2: Avient Corporation (AVNT)
AVNT operates as a formulator of material solutions in the United States, Canada, Mexico, Europe, South America, and Asia. It functions in two segments: Color, Additives and Inks, and Specialty Engineered Materials.
AVNT’s 9.77% trailing-12-month levered FCF margin is 86.7% higher than the 5.15% industry average. Similarly, its 17.28% trailing-12-month EBITDA margin is 4.3% higher than the industry average of 16.56%. Its 11.59% trailing-12-month EBIT margin is 8% higher than the industry average of 10.74%.
During the second quarter, which ended on June 30, 2024, AVNT’s sales grew 3.1% from the year-ago value to $849.70 million. The company’s operating income rose 18.5% year-over-year to $99.70 million. Moreover, its adjusted net income and adjusted EPS were $70.20 million and $0.76, respectively, up 21.2% and 20.6% from the year-ago value.
Street expects AVNT’s EPS and revenue for the quarter ending September 30, 2024, to increase 9.5% and 5.2% year-over-year to $0.62 and $793.15 million. It surpassed the Street EPS estimates in each of the trailing four quarters.
Over the past nine months, AVNT’s stock has gained 19.4% to close the last trading session at $49.63.
AVNT’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
AVNT has a B grade for Growth and Sentiment. AVNT is ranked #14 in the same industry.
One can check AVNT’s ratings for Value, Momentum, Stability, and Quality here.
Stock #1: Eastman Chemical Company (EMN)
EMN is a leading specialty materials company. The company operates through Additives & Functional Products; Advanced Materials; Chemical Intermediates; and Fibers segments.
In terms of the trailing-12-month levered EBITDA margin, EMN’s 17.21% is 3.9% higher than the 16.56% industry average. Its 11.84% trailing-12-month EBIT margin is 10.3% higher than the industry average of 10.74%.
During the second quarter that ended June 30, 2024, EMN’s sales revenues increased 1.7% year-over-year to $2.36 billion. Its adjusted EBIT rose 5.1% from the year-ago value to $353 million. Also, the company’s adjusted earnings per share was $2.15, an increase of 8% from the previous year’s quarter.
Analysts expect EMN’s revenue to increase 4.8% year-over-year to $2.38 billion for the third quarter ending September 2024. The consensus EPS estimate of $2.13 for the current quarter indicates an improvement of 45.1% year-over-year. In addition, the company topped consensus EPS estimates in all four trailing quarters.
Over the past six months, EMN’s stock has gained 5.5% to close the last trading session at $110.63.
EMN’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. Within the same industry, it is ranked #23.
To see EMN’s additional ratings for Stability, Value, Momentum, Growth, Quality, and Sentiment, click here.
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PPG shares were unchanged in premarket trading Wednesday. Year-to-date, PPG has declined -11.23%, versus a 20.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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